Some changes needed

IGU asks for amendments to documents for purchase of Pentex from AIDEA

Alan Bailey

Petroleum News

The Interior Gas Utility is asking the Alaska Industrial Development and Export Authority for some changes to the contractual documents for the sale by AIDEA of Pentex Natural Gas Co. to IGU, Jomo Stewart, CEO of IGU, told the IGU board on Nov. 7. Robin Brena, counsel to IGU, told the board that IGU has been in discussion with AIDEA over the documentation and was expecting a response to IGU’s concerns. The plan is to have a revised version of the documentation before the IGU board, to enable a decision by the board no later than Nov. 28 on whether to authorize the Pentex purchase, Brena said.

Stewart said that IGU was in the process of organizing a public meeting in Fairbanks, to enable public comment on the proposed Pentex purchase before the board decision. There was discussion during the board meeting of the need for an additional public meeting in North Pole.

Sale approved

During its Oct. 26 meeting the AIDEA board passed a resolution approving terms for the sale of Pentex to the Interior Gas Utility and giving the IGU board until Nov. 30 to approve the deal. During that meeting Stewart expressed his concerns about some of the detailed terms within the sale documents, saying that the final versions of the documents had been issued without time for review by IGU. Stewart told the IGU board that some of the terms within the documents had not been fully negotiated with IGU and some had not even been discussed.

The proposed Pentex sale comes as part of the Interior Energy Project, or IEP, an AIDEA project to bring affordable energy to Fairbanks and its surrounds and to reduce winter air pollution in the region by instigating a greatly expanded natural gas supply at a workable price. AIDEA purchased Pentex in 2015 to help facilitate the completion of the IEP. Pentex owns the Titan LNG plant near Point Mackenzie, as well as a trucking operation for transporting LNG to Fairbanks, and Fairbanks Natural Gas, a utility that currently supplies gas to customers in central Fairbanks. The idea has been to combine FNG and IGU, the other Fairbanks utility, to form a single utility - hence the proposed sale of Pentex to IGU.

Favorable terms

Stewart emphasized to the IGU board that the basic terms of the financing agreement for the Pentex purchase are very favorable, with $125 million in funding from specially configured Sustainable Energy Transmission and Supply, or SETS, loans for the project. The loan term is 50 years, with payment of principal and interest deferred for the first 15 years, to enable time for IGU to establish a large enough customer base for continuing financial viability. And, should that customer base be insufficient after 15 years, payment of principle can be deferred for a further five years, Stewart said. Additional funding comes from a state capital appropriation, with the possibility of additional AIDEA bonds for system expansion in Fairbanks.

However, the Pentex purchase documentation, as it stands, contains a couple of contradictory clauses that render it impossible to sign the documents, Stewart said. In addition, further clarity is needed on several issues, including a clear specification what expenses AIDEA expects IGU to pay, Stewart said.

And the documentation includes a number of conditions or covenants associated with the sale, with punitive consequences should those conditions not be met. Consequences would be the elimination of the repayment deferral period and an increase of the interest rate to 3 percent.

Stewart said that IGU’s concern is that, with such severe consequences for an infringement of the terms of the financing, it is important that those terms be quantifiable rather than subjective. For example, one of the financing conditions requires IGU to operate under prudent utility practices. While IGU wants to operate a utility-grade service, the question of what is meant by “prudent utility practices” is subjective, leaving IGU at the whims of someone arbitrarily determining that the utility was not compliant with the financing terms, with dire financial consequences for IGU, Stewart suggested.

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Therriault comments on Houston LNG

Knikatnu is the Native village corporation for the Knik and Wasilla area.

The Knikatnu group and Siemens presented their concept to the AIDEA board during the public comment period of AIDEA’s Oct. 26 meeting. The group has said that it has been unable to obtain a slot in any AIDEA board meeting and that, as a result, it had to resort to providing a presentation as a series of three-minute comments by group members during the public comment period.

During the board meeting, the board and Therriault indicated that the Knikatnu group would have opportunity to submit their plan as an option, in response to a request for proposal the expansion of the Point Mackenzie plant. The plan to expand the existing plant derives from a request from AIDEA in 2015 for competitive bids for expanding natural gas or propane supplies for Fairbanks.

Met with group in 2016

Roger Purcell, senior partner with East West Pacific Consulting, who has been working with Knikatnu on the Houston proposal, has told Petroleum News that, with the Houston railroad spur not being completed until after 2015, the concept for a Houston LNG plant did not emerge until after AIDEA’s 2015 request for proposals. And the Knikatnu group did not respond to a recent AIDEA request for proposal for a new LNG storage facility in Fairbanks because to do so would have posed a risk of being disqualified from bidding for the expanded LNG supply, Purcell said.

—ALAN BAILEY